## Scope and Year of Chargeability [Section 45]
Section 45 fixes when a capital gain becomes taxable. The general rule is taxation in the year of transfer, but four special situations shift the year of charge and the FVC.
### 1. General Provision [Section 45(1)]
- Applicability: Profits/gains on transfer of a capital asset during the previous year are taxable.
- Year of taxability: Year of transfer — based on the date of sale, NOT the date of agreement.
- Indexation: Cost of acquisition can be indexed up to the year of transfer only.
### 2. Destruction of capital asset + insurance compensation [Section 45(1A)]
- Applicability: Money or other assets received under insurance due to damage/destruction of a capital asset — treated as a transfer.
- Year of taxability: Year of receiving the consideration from the insurance company.
- FVC: Amount received, or the FMV of the assets on the date of receipt.
- Indexation: Available up to the year of destruction only.
### 3. Conversion of capital asset into stock-in-trade [Section 45(2)]
- Applicability: When the owner converts a capital asset into SIT for business — treated as a transfer in the year of conversion.
- Year of taxability: Year of sale of the SIT (both Capital Gains and PGBP income become taxable in that year).
- FVC: FMV of the capital asset on the date of conversion.
- Indexation: Available up to the year of conversion.
- Business income: Profit/Loss = Sale price of SIT − FMV on date of conversion.
### 4. Compulsory acquisition [Section 45(5)]
- Applicability: Capital asset acquired by the Central Government under compulsory acquisition — treated as a transfer.
- Original compensation: Taxable in the year of receipt of the compensation.
- Enhanced compensation: Where a court awards higher compensation, the enhanced amount is taxable in the year of its receipt. COA and COI for the enhanced compensation = NIL.
- Interim compensation: Not taxable when received; taxable in the year the final compensation is determined.
- Reduction in enhanced compensation: If later reduced by a court/tribunal/authority, the capital gains of that year are recomputed via rectification.
- Death of transferor: If the transferor dies before receiving enhanced compensation, it is taxable in the hands of the recipient.
Memory hook: The trigger of transfer and the year of tax can differ — conversion to SIT is transferred at conversion but taxed at sale; insurance/compulsory acquisition are taxed when money is received; indexation is always frozen at the year of the triggering event (transfer / destruction / conversion).